This downturn will be marked in history as the time where many of the business models built in the industrial era finally collapsed as a result of being undermined by the information age. Its creative destruction at work. It's painful and many jobs will be lost permanently. But let's also remember that its inevitable and we can't fight it. Technology and information forces are unstoppable and they will reshape the world as we know it regardless of whether or not we want them to.

'Spectrum' is a good way of thinking about what is going on, and let's call the commercial aspects of the current interregnum and coming change the 'green' part of the rainbow, nicely positioned in the heart of ROYGBIV.

Over there on one edge of the spectrum of the future, I'm spending a lot of time worrying about Red, the color of Mars, god of war.

'Arena' is a word chosen carefully, because commerce is a game played within set rules. The larger struggle is how, and by whom, those rules are set; and that combat both has no rules, and is about to become much more intense. Frail Mercury may sit on the sidelines, or hide in the cellar, while fiercer fights take place.

Why do I feel so strongly that this is imminent? Unrealized to many of us in the west, the beneficial outcomes of the current 'game' of commerce have now been disproven in the eyes of many. Seeing the newly revealed artificial nature of progress and prosperity in the West, does anyone in Nigeria, or Pakistan, or Brazil, or Russia, Malaysia, truly believe that their ladder up through the stages of global capitalism actually has rungs?

If they stop believing that, they stop playing the game, and move on to more fundamental maneuvers. And one of the precepts of those maneuvers is that they must be responded to, which means that only one party's decision is required to set them in motion.

Sunday, December 21, 2008

The world is unsettled. It's not just this damned financial nightmare we have to deal with but also a sense of between-ness, like something has just ended yet still lingers slightly though it is obvious that something new is about to arrive. But will it be a good something new? That's hard to tell.

In past eras we used to have interregnums between the reigns of kings. These days, we see them in the pauses between empires, hegemonies, and technology-driven waves of infrastructure. We're there.

I'll try to get some thoughts posted on waves of technology and deflation over the Christmas holiday. It won't be fun, but it may be interesting.

We're finally to the point in this unfolding economic crisis where most people are seriously willing to engage with the topic of whether this recession is of the magnitude and danger of the Great Depression. That's far cry from a year or even six months ago, when depending on the skepticism of your listener, using such terminology either raised eyebrows or placed you straight into the tinfoil-hat brigade.

That's a good thing, because once we can talk about something, we can analyze it, manage it, and possibly mitigate it in ways that are really difficult to do when we're in a state of absolute denial.

I continue to be puzzled by how many people view market movements as abstracted from real-world events, as if markets are some pure reflection that has little or nothing to do with the facts on the ground. These sorts of arguments are common when people say, for instance, that the fact that the S&P is now trading at or slightly below its long-term "fair value" means that it's unlikely that stocks will go down further. This is a slipshod presumption because there are whole huge categories of risk that have yet to really be taken into account, just as one year ago, the very real risk of systemic defaults on structured finance obligations across all debt classes had not yet been taken into account.

The thing that is scaring me on an almost daily basis is political risk, and I am amazed that this is not a much larger part of the discourse already. One of the few exceptions that I have seen is Gary Shiller's recent discussion of the possibility of regime change in China. Does anyone remember what happened right after the Great Depression? The answer is World War II, and it's worth remembering that World War II was made up of a number of interlocking wars, with the Japanese, Germans, Soviet Union, British Empire (including India), United States, the French Empire, China, Italy, and many other secondary players (the list is endless but includes most of Asia, all of Europe, and most of North Africa as well as our good friends the Canadians, Australians, and New Zealanders) all throwing their entire military and productive capacity into a struggle of resources, ideology, economic systems, power, and race that the world has not seen before or since.

It is my sincere belief that both the Great Depression and World War II were the direct outgrowths of the protracted collapse of the British Imperial economic order, which first started to crumble with the Boer War in South Africa circa 1900, and whose final death knell was sounded in the late 1950s and early 1960s with the effective end of colonialism. A huge swathe of actual and abstract infrastructure needed to be swept away to prepare the world for a new economic and political system, as the illogical remnants and deep-seated contradictions and flaws of the prior order were exposed, exploited, and exploded. It was an era where the myth of white supremacy was as outdated as the battleship, and in ten years of global struggle (1936 - 1945) and megadeath, the foundations were cleared for what came next.

We are now twenty years since the end of the Cold War in 1989, and we are due for a big war or two. We can get lost in the metaphors of whether what may come would be the equivalent of World War I or World War II. What worries me is that it is coming, and it is coming for both a long-standing reason and a proximate reason.

The long-standing reason is that we have hugely illogical and remnant pieces of global political and economic structure. When the Cold War ended, there was still no effective difference between a telephone company and a national government; paper was still the major form of bureaucratic communication, advertising, and information dissemination; petroleum's energy supremacy was unquestioned; and the vast majority of the world's economy was composed of the US, Western Europe, and Japan.

The core structures of our natural resources extraction, global shipping and trade, transportation systems, energy systems, information systems, and military makeup haven't really changed that much. Tanks, jets, and aircraft carriers still dominate the modern military, though their conceptual resonance with armored knights on horseback in the emergent era of the first firearms grows stronger by the day. Vertically managed corporations still rule the economic landscape, though their resemblance to discredited socialist bureaucracies is as strong as ever. Factories may have moved to China but largely still run just as they did thirty and fifty years ago. Pensions, retirement funds, education, healthcare... the list goes on. The world has changed, and our systems cry out for a reboot. Such rebirth - renaissance - turning of a new leaf, the turning of a globe, revolution - is inevitably painful, miserable, and destructive. I'm not calling for it; in fact I fear it -- but I am predicting it.

That is the general cause.

The proximate cause is quite simply poverty. Material poverty, poverty of spirit, and poverty of ideas. In perilous times, rulers fall; and rulers who may fall will do anything that they can to maintain their tenuous grip on power. The most logical move in the world is for a ruler to focus inward anger outward; to create or highlight a wrong or an enemy, and unite a populace against that cause. The wrong may be true, or it may be constructed; there may be a valuable prize to be gained (such as resources) or war may simply drive domestic political benefit. But as sure as the sun rises, right now, threatened rulers in many halls of power are contemplating wars of many kinds. In retrospect it becomes a difficult question whether the rulers led the people to war, or whether the populace demanded rulers to lead them there; once a politician puts himself at the head of a parade, who is to say whether a pull or a push is in progress?

But in either case the war happens.

The political risks of our current crisis are practically immeasurable; they are easily as profound as those extant in the decade leading up to WWII.

* China faces domestic unrest that may cause it to implode. * The EU faces internal schisms that may cause it to break apart. * Africa faces an existing tide of lawlessness and poverty, and spark-points such as Zimbabwe, that may draw much of the continent into varied forms of bloodshed* I will be shocked if India and Pakistan don't have a war in the next decade, and relieved beyond expression if that war doesn't go nuclear* The United States will face its own serious domestic discontent, as it has the most to lose from the dissolution of the current world order* A nuclear-armed and belligerent Russia is about to be impoverished by the collapse of oil prices. The last time that happened was 1989, and the Soviet Union fell. * The many petroleum-fueled autocracies of OPEC face similar threats - and many are well-armed* South America has large states with little petroleum -- Brazil, Argentina, and Chile -- and small states with a great deal of petroleum -- Colombia and Venezuela.

Even leaving aside additional sources of potential stress such as drought and declining food and water supplies brought on by climate change and overfishing, there is such ample opportunity for global disaster here that it's hard for me to imagine that the coming decade will be peaceful.

In terrible recessions, markets don't trend 50% below their "fair value" for abstract reasons. They do so because the outlook for the future at those dark, bleak times is truly terrifying.

Sunday, December 07, 2008

An article I read on Bloomberg today sent of all of my "looming unintended consequences" radar into turbo overdrive. It's about the spread between current and futures oil prices, apparently called Contango, and the fact that this spread is so unusually large right now -- $41 current price vs. $55 December 2009 futures contract, so $14 per barrel -- that it's actually cost effective to:a) rent a supertankerb) borrow enough money to buy a Buh-Buh-Billion dollars worth of oilc) anchor said tanker offshore somewhere andd) physically deliver the oil a year hence.

Some Oil Dude in London is reliably quoted as saying that this strategy should deliver 11% profits over the forthcoming year, which looks pretty darn tasty when Ye Olde Worlde is ending all around us, and Treasuries are paying less than 1%. The reason that my looming disaster radar is going Beep! Beep! Beep! is because as sensible as it sounds, this is just the sort of nothing-can-go-wrong "auction off our lottery and our turnpike" sort of thinking that has gotten us so deep into our current financial crisis.

So for those who habitually stomp through graveyards, the foolish of all stripes, and investment bankers in particular, here's a short list of what could go wrong with this strategy, from the likely to the formerly absurd:

* Bankruptcy and/or default of whoever is sitting on the other end of that billion dollars worth of futures contracts. I can certainly imagine that entity either having gone under in the normal course of business 12 months from now, or seeking bankruptcy protection to avoid paying what could literally be $500 million worth of additional costs, if oil is at $28 instead of $56 when December '09 rolls around. Since every contract we can imagine has turned out to be worth the equivalent of toilet paper over the past 12 months, what's to say that oil delivery futures contracts won't suffer the same fate?

* Storm and/or other damage and destruction of the tanker and the oil. Sure, there's insurance against such things. Insurance companies are just SO financially stable these days, and happy to pay billion-dollar losses rapidly and fully, don't you agree? (cough) AIG (cough).

* Pirates and terrorists, oh my! The article goes on to say that as many as 16 supertankers may be booked for such use; which means that they'll be sprinkled around the globe in all sorts of locations, ripe to be hijacked, blown up, spirited away, or other malfeasant use.

Seriously, what really gets my hackles up (in fear not in anger) is that this sort of stupidly rational strategy is the height of "the system works" thinking, which assumes that a long complex interlocking string of contracts will be honored. Let's look at the string here:* A current contract to buy a billion dollars of oil* A loan to finance a billion dollar purchase* Rental of a supertanker [and crew?]* Insurance on the tanker and the oil* Some sort of anchoring rights [or the knowledge where to anchor in international waters]* A futures delivery contract for the oil

Think that anything could go wrong here? See any arcane interconnection of previously uncorrelated financial instruments and indices? Worried about the odds that at least one single thing in this long chain will go slightly wrong, in a world where Things Going Wrong has lately proven to be the approximate statistical equivalent of the sun rising in the east?

Friday, November 28, 2008

One of my investors, David Carlick, is a pioneering thinker in online advertising. David was a founder of DoubleClick, and has been a leading proponent of behavioral advertising. He is fond of saying that "every click is a survey," and that pithy phrase captures a lot about how the aggregate of human behavior can be turned into knowledge.

I've been thinking about local for a few years now, and I'm increasingly obsessed with the kind of ranking intelligence that can be derived from the physical map of cities. Most of the features of cities - streets, buildings, transit systems - are not there by accident. Rather, they are the accrued choices of generations of human beings, a physical record of millions of discrete building and buying and selling decisions, made over decades or centuries.

In truth, every brick is a survey.

Here's a very simple example: What's the most expensive and valuable part of Vancouver? How about the part with the tallest buildings?

If you were told to a) choose a hotel for an urban weekend, cost no object; or b) choose a prestigious location for your multinational headquarters, you could do far worse than to point to the high point on the implicit value graph of the skyline and say, "here."

There are hundreds of other examples too lengthy to record at 6am UK time, which is when this urge to blog has struck me. Unpacking this latent ranking intelligence in physical reality is a very interesting and potentially lucrative search problem, one that I'm looking forward to working on for years to come.

Monday, November 24, 2008

In practice, inflation and deflation are effectively the same thing. Inflation is "you have lots of money but it isn't worth anything" and deflation is "money is worth a lot but you don't have any."

In either case, massive social and economic dislocation occurs. And the same crisis can simultaneously cause both outcomes - witness during the Great Depression, which created deflation in the United States and hyperinflation in Weimar Germany, both with the same root cause: the collapse of the British Imperial trading order and the decline of the pound sterling as the global reserve currency.

For an orderly and functioning society, the intersection of people having money and that money being worth something is required. I don't think we're heading there, and whether we drive off the right side of the road or the left side, this is going to be ugly.

Tuesday, October 28, 2008

My Mom emailed me with the story, and told me that she was disappointed that she wasn't in the bustling Obama headquarters when Broder stopped by:

Two local women at the tables -- Cullen Naumore and Catherine Wiandt -- heard Sen. Joe Biden when he spoke in mid-September at the College of Wooster. Naumore had never thought of volunteering in a campaign, and Wiandt had abandoned politics, disillusioned, after working for Democrats in her younger years. Now they are part of a volunteer force that Litt estimates at "100 per week and growing." Two others are Jessica Schumacher of Lexington, Ky., and Sarah Green-Golan of Boston, respectively a sophomore and a senior at the College of Wooster. I met them on campus and heard how they and their friends had persuaded 700 of their fellow students to register in Wayne County, where the Republican presidential margin has ranged from 11,000 to 12,000 votes in the past two elections."It's going to be different this time," they assured me.

When I was growing up on a farm outside of Wooster, Ohio, my parents used to gently mock the city values of the county seat, where, astonishingly, a Democrat was mayor. Wooster's population then was about 18,000, and it's the sort of place with a gorgeous courthouse, empty streets, and 'family values' signs in the windows of businesses downtown. Berkeley it ain't. But from the comparative conservative high ground of the countryside, it seemed like a suspicious hotbed of liberalism.

This year, my Mom, now moved to town, is going door to door for Obama.

Monday, October 27, 2008

"One of the I think the tragedies of the Civil Rights movement was because the Civil Rights movement became so court focused I think that there was a tendency to lose track of the political and community organizing and activities on the ground that are able to put together the actual coalitions of power through which you bring about redistributive change and in some ways we still suffer from that."

If you think that the word 'redistributive' means he's a socialist, well, sure, game over, he's a socialist. But then you probably think FDR was a socialist, too, and I think that he and Ronald Reagan were the two greatest presidents of the last century.

The simple fact is that all of society benefits when there's a floor at the bottom and no ceiling at the top. FDR built the floor, and fifty years later, Reagan fixed the ceiling problem. Now, 25 years later, it's time to repair the floor, and in 20 or 30 years, some new Reagan can come along and fix the ceiling which by then will no doubt need repair.

I'd have voted for both FDR if I were alive and Reagan if I were of age, and I'll be voting for Obama and no doubt for Reagan's future successor to come. Management is mostly about pragmatism, and oversight of management is mostly about choosing the right guy for the problem. FDR, Reagan, and Obama are all that guy, and I'm looking forward to contributing my small voice to the process of choice in a week's time.

Wednesday, October 15, 2008

If you had any doubt that we live in interesting times, check out this amazing stock chart:That's Japan's Nikkei 225 average over the past 5 trading days. It looks like it was drawn by a five-year-old who doesn't understand the concept; since when are stock charts made up of straight lines and gaps?

Even more interesting is that this is an *average* of 225 stocks. Isn't diversity supposed to even out fluctuations? The entire world financial system is now learning the painful lesson discovered by Long-Term Capital Management in 1998 -- that in edge and corner cases, entire asset classes, and multiple asset classes, can unexpectedly be deeply correlated, with the result being severe dislocation. Condos in South Florida and the Icelandic Krona -- who knew?

Sunday, October 12, 2008

For students who set their sights on Wall Street during the boom years, the end has come just as they are getting ready to join the party... But even as the markets spiraled downward, business and finance students at top universities said they were not panicked about their futures and were confident that the financial markets would recover. For the young achievers drawn to finance, expectations die hard. [Kenton] Murray, [a senior at Princeton,] described the mood at Princeton as cautiously optimistic. No one I’ve talked to is worried about moving back home yet,” he said. “But everyone I know is studying for the LSATs right now, people who a month ago had no intention of ever going to law school.”

Jian Yang, 25, who is in his second year at the University of Chicago's graduate business school...expects to graduate with $200,000 in student debt.

Ye Gods.

Part of the reason that we got into this mess is that too many bright people are doing relatively useless things like investment banking and lawyering. Another key reason that we got into this mess is that once any entity -- from an individual person to the Federal Government -- gets themself under a massive pile of debt, their options are highly constrained. Prison may be more crushing than debt service; but it may not, because in prison, you don't have to spend your sentence productively.

To all the MBA students out there -- please don't double down on this historic mis-allocation of resources. If you are quantitative enough to consider finance, look into data mining and machine learning for product and marketing design and refinement. Translation: search relevance and ad targeting; but these are only the tip of the iceberg. Soon these disciplines will spread, because they add real value both to consumers and to merchants. Operations research for resource allocation is another huge area. The world is undergoing another historic transition now, which is toward connected, data-driven marketplace of real stuff -- not the fake packaged stuff that has been driving Wall Street for the past seven years. You won't ever get a $500K bonus working in this field, but you'll make a good salary, you'll add to the productive economy, and if you join (or start) the right company, you'll get rich beyond Wall Street dreams of avarice -- and deservedly so.

To all the law students out there -- if you are articulate and nuanced enough to consider law, how about a management or leadership career? The world needs more thoughtful communicators and accomplished managers. Running a team is a lot harder than running a trial, but much more rewarding. Understanding and influencing the people who work for you and who struggle to work together is a lot more interesting than navigating a jury selection pool. Negotiating a business partnership is a lot more fulfilling than a litigation settlement. I see the insides of hundreds of organizations that we partner with, and good management and leadership is all too rare. You too can make an enormous difference to the productive economy by refocusing your talents elsewhere. Are we electing Barack Obama president because he's a good negotiator? Or because he's a great leader, communicator, and manager? You know the answer. Be that answer.

And to all of you - please, please be careful about getting yourself buried under a mountain of debt, such that you end up having to work at a career that you may hate, in an industry that may not really provide anyone lasting value, simply because you are crushed by your debt service. I'm sorry, but if it takes $200K in debt, then whatever your parents told you about getting into that 'top school' is probably wrong. The ROI to your life is negative. I flunked out of one top school and left another before completing my PhD, and I was neither struck by lightning nor am I begging on a street corner. If you're truly smart, talented, motivated, and capable, you'll do fine.

Monday, October 06, 2008

The size of the numbers is staggering -- $700 billion here, $900 billion there -- and a lot of people are wondering how it's possible that seemingly every bank and every homeowner is suddenly broke.

There have been clear signs for a while that something was amiss in the housing and consumer consumption market, and one great indicator is Mortgage Equity Withdrawal, or MEW.This is, quite simply, the net amount of cash that people pulled out of their houses to spend on Other Stuff -- either by a home equity loan or, in the case of retirement, selling an expensive house and buying a cheaper one. The financial blog Calculated Risk reports, buried in an article about the collapse of MEW, that U.S. consumers pulled $2.7 trillion out of of their houses during the five years from 2004 through 2008:

Equity extraction was close to $700 billion per year in 2004, 2005 and 2006, before declining to $471 billion last year and will probably be less than $100 billion in 2008.

While some of that might have been spent on the houses themselves, in the sensible form of new bathrooms or additions, a lot of it was spent on questionable upgrades like granite countertops and flat-out expenditures like flat screen TVs, Hummers, and vacations to Fiji. So the reason that all those Wall Street banks are going bust? Because they thought that you -- or your neighbors -- were actually going to pay back the inflated mortgages that backed up that giant sucking sound of the home ATM in overdrive.

For those of you who protest (as I do) your innocence, realize this simple fact: Even if you didn't do such an extraction yourself, whatever business you are in benefited from the huge increase in consumer spending that this MEW generated over the past four years. Retail, manufacturing, advertising, financial services, construction... we all lived a little or a lot better.

And now, not only is it gone, but we've got to pay it back in the form of systemic collapse, higher taxes, or inflation. None of us were as wealthy as we liked to pretend over the past four years, and now we're all going to be a lot poorer than we're ready to admit.

Tuesday, August 26, 2008

I've got a list of interesting topics right here on my desk, on a couple of increasingly tattered Post-it notes.

There's the 'Poker Analogy' post for machine learning-driven processing of log data. There's the 'Match.com Analogy' post for how search is a collaborative process. There's the 'Spice Rack' post on building search relevance. And there's the 'Smart Delivery of Dumb Objects' post about ad targeting.

In addition to these four fascinating posts (trust me ;-) I've got at least two really cool related product ideas moldering on that same little collection of decaying desktop notes.

Saturday, August 16, 2008

Writes the Detroit News, "...some abandoned homes in Detroit sell for $100; vacant lots can be purchased for $300."

"My 14-year-old son could buy a block of Detroit property," said Ann Laciura, senior servicing specialist for the Bearing Group.

Whenever someone tells you that it's impossible for an asset class to go to zero, they're either dumb, or hoping that you are. If the carrying costs and net obligations of any asset exceed the cashflow, it's worth zero or less than zero. We saw this a lot during 2001-2002, as companies with insane cost structures met grim fates, occasionally returning as shadows of their former selves, or reinvented as actual profitable businesses.

Businesses probably worth less than zero right now:GM and ChryslerCitibank and Washington Mutual

Silicon Valley got crushed in the last asset bubble deflation. This time around will be relatively kind to us, but there will still be pain.

Monday, August 04, 2008

I try to keep the Zvents news to a minimum here, but I'm very excited to note that we're now powering local event search for the new MSN CityGuides. We've been powering major media sites since our first partner, the San Jose Mercury News, launched in July of 2006 -- over two years now, and it's seemingly gone in the blink of an eye. Even versus our now-hundreds of local media partners, big sites like MSN are a whole new level of scale. It's not just their userbase - which numbers in the millions per month - but as one of the biggest technology companies on the planet, their expectations around SLAs, integration, product and project processes, etc., require us to really step up our game. I'm excited that we're proving that we can play in this league. We may still be a little mouse of a company, but we're dancing with elephants ;-)

"could really shake up the search landscape""it would upend the way companies get attention online.""it might be able to reverse MSN Search’s slide towards irrelevance.""a new kind of search"Aargh.

I decided to channel my powers for good instead of evil, and rather than trolling in the VentureBeat comments, I decided to trawl through the Onotech archives and pull together many pieces I've written about search relevance into this one handy post that I can refer to in the future.

Note that this is not just about search. Search is just one facet to the golden rectangle of the data-driven web -- search, ad targeting, discovery, and analytics -- that makes every modern web company rivers of cash. All of these product mechanisms share underlying concepts and technologies, and I've blogged about them (and the infrastructure that makes them possible) many times over the years. Here, in time order, are some of the better posts on the concepts behind the data-driven web.

Another time, I'll pull together a second summary blog post on infrastructure thoughts - because there are some really cool software technologies that make this all possible.

This is also probably a great time to show off my birthday present from Somer Simpson:Schweet. I may make T-shirts -- email me if you want one ;-)

It's great to see a well-written, informative article, "Microsoft tries to one-up Google PageRank," about an innovation in search ranking, published at a major tech news outlet like CNET. Stephen Shankland's piece on Microsoft's BrowseRank is definitely all that. It thoughtfully discusses the concept that people's click behavior is a very powerful (and different) voting popularity mechanism than the link graph of PageRank to assess web page search relevance. All good.

However it's maddening to see yet another naive or deliberately misleading article on an innovation in search ranking, that perpetuates persistent misunderstanding of how search works and what makes search better. Maybe it's just a standard media trope to essentialize any topic to the point of parody, but I'm so tired of seeing pieces that fetishize "The Algorithm" as some singular magical trump card by which search is won and lost. Combining scientific models to produce a ranking function is difficult, obscure, and incredibly important, so to some extent I can understand why the media keeps writing stories focused on this. But it's sort of like watching a Saturn V take off for the moon, and turning confidently to your neighbor and saying, "that thing takes off because NASA figured out The Engine... I hear the Russians are working on something better than "The Engine."

Please. Great search is made up of a couple major areas of competence:* Scaled aggregation of content. It doesn't matter how good your matching might be if you don't have what the user wants in your cupboard of goodies. * Scaled user voting behavior to assess value. Be this the ability to crawl and assess hyperlinks, access to and the ability to assess user clicks, or one of (as Udi Manber rightly says) hundreds of other variously valuable and tractable methods, you need access to behavior metadata, crystallized in one form or another* A scientific process and platform by which you can run many experiments to fine-tune the value of various voting behavior signals.* A technological platform to rapidly and cost-effectively perform this mind-boggling level of computation, faster than the answers and the questions are evolving on a global scale.* A bunch of really great scalability engineers to build that platform* A bunch of really great search scientists to conceive, build, and test models on a continuous basis* Oh, and a very effective monetization effort to pay for all of this incredibly expensive infrastructure, people, and time cost.

It sounds a lot more like General Motors circa 1955 than it does "genius in a garage cooking up the next great thing," doesn't it? Perhaps that's why the media always falls into this trap - the brilliant loner or breakthrough insight that changes the world is just such a powerful narrative hook, whereas a discipline, competence, process story is just kind of... boring.

The reality of world-class search today is that it's big, complicated, and multi-faceted. It has emerged into a discipline of technology all its own, and advances will tend to be subtle and hard to explain. Remember that whenever you read the next excited story about the Next Great Algorithm.

Saturday, July 19, 2008

An article on GigaOm caught my eye: "With Exits Barred, VCs Keep Investments Flat". In the piece, Stacey Higganbotham relates the reassuring news to entrepreneurs that VC investment in early stage companies remains strong, and that later-stage deals are being done at a historic clip -- 318 in the second quarter alone. But then she drops this little tidbit:

If those companies don’t exit within the next two to three years, VCs will have to start selling at a loss or pushing firms into bankruptcy.

Huh?! What's wrong with this picture? Any 'late stage' deal likely means a C and possibly a B round -- so the company involved has been in business for 2 or 3 years already when it raises the round; and the round should last it for at least another 18 months.

The presumption here is that tech startups don't get to profitability.

This is the worst legacy of the tech bubble, when lots of permanently unprofitable companies were started, funded, and even IPOed. It's got nothing to do with the true legacy of Silicon Valley, where superstars of past eras -- Intel, Apple, Sun, PeopleSoft, Oracle -- became insanely profitable companies. And this presumption is blinding us to what's happening in the Valley today. It's the same mistake that made you not buy Google shares at $85 in 2005, and you shouldn't let it blind you again.

I personally know of at least three highly profitable startups that may go public in the next 12 months, and may not. All three of them have been in business for over five years, and they are throwing off not just revenue but cash profit at a very impressive rate. To those three, I can add at least a dozen that I'm pretty sure are highly profitable as well, I just don't know for certain. All of these companies are the types of startups that are raising the "late stage rounds" that Stacey seems to believe must lead to exit or bankruptcy, because there is no third path.

Every startup that I've built has been intended from Day 1 not just to be transformative to its market, but to be a real, profitable business, with real customers. That's the true legacy of Silicon Valley, and the sooner we get our heads past the failed abberation of 1999-2001, the better.

Wednesday, June 25, 2008

Liz Gannes at GigaOm has the story and the pictures. Hypertable will be going beta Real Soon Now, and we're very pleased at the press and traction that it's been getting. It's the featured article in the June 2008 Linux magazine (link soon when it's on the web) and Doug has a pretty packed speaking schedule this summer including OSCON and FOO Camp.

Even more exciting is that we've got Hypertable in production at Zvents, and we're starting to see some of the benefits of a really fast and scalable analytic platform for search relevance, analytics, and ad targeting.

Monday, June 16, 2008

It's pretty common for accomplished executive talent to join VCs in EIR positions -- with the 'E' being either 'Entrepreneur' or 'Executive' In Residence. But this may be the first time that I've seen someone join *two* VC firms in such a role simultaneously. The purpose of an EIR role is to help advance the agenda ( = fund returns) of the VC, while advancing the career of the exec. Hard to do that for two different VCs at once. So unless Weiner is such a rare talent that he got Accel and Greylock to agree to go halvsies on his potential future value creation, there must be some reason that that they're mutually interested in him.

The biggest thing that Accel and Greylock have going together is... Facebook. Now we all know that Mark Zuckerberg is firmly ensconced in the CEO role there. But is he really? A year later, Beacon is a failure. Jerry Yang has spent the last six months giving us all a lurid demonstration that even with fifteen years of seasoning, founding CEOs rarely are the right guys to manage public companies. Facebook has made no secret of its intentions to stay independent and go public. So... Jeff Weiner as CEO of Facebook? Don't be surprised.

Is Weiner a good fit for Facebook? It's a company with serious platform ambitions, which has been successfully recruiting senior technical talent from Google. It's a classic Web 2.0 company, scaled to the max. And it's a company that is poised to inherit the mantle of Yahoo as the biggest property of the social/personal web, as Yahoo continues to bleed away its birthright. Here's a snippet of Weiner's resume from the Accel release:

During his tenure, Weiner helped drive the Network’s Open and Social strategy and expansion of the company’s category-leading consumer web products... Prior to his Network role, Weiner was part of the Search leadership team that directed the acquisition and integration of Inktomi, AltaVista, FAST as well as the development of Yahoo! Search Technology. He helped launch the company's suite of social search products - including Yahoo! Answers - and led the acquisitions of del.icio.us and Flickr. He was also part of the leadership team formed to help revitalize the company's Search Marketing efforts.

Yeah, that experience might just apply to what Facebook is trying to do.

Wednesday, May 28, 2008

I generally try to keep the Zvents posting light. This is not a long post about the company - it's just a quick note, somewhat of a milestone of awe. I've been so silent for so long because I've been utterly immersed, spun up in a tornado of business - for four months now, seemingly without end. It's been incredible. Exhausting. Exhilarating. I just did a quick count, and I've received 195 emails today - 97 of which came after 5pm. This past Memorial Day weekend, from 4pm on Friday through Monday at midnight, I personally did more business than many startups see in a month. At least six customer and partner calls, and endless email. This is not meant to brag. It's more of a sense of wonderment. When everything starts working, the net acceleration is just incredible.

I hope there's not a big wall out there just over the horizon, because we're moving at the speed of light.

The second is that AOL has acquired Sphere, Tony Conrad's blog recommendation engine, for about $25m. Since it launched three years ago, Sphere has done a great job of bringing its 'related commentary' widget to the content pages of very large sites like the New York Times, Washington Post, and Time magazine.

These two announcements are related, and I'm surprised that the usualcommentators haven't picked up on this yet. The future of the internet is becoming increasingly clear -- it's advertorial, or a blend of commerce and content. In a huge number of cases, the content that users consume - presented either editorially, via search, or via a recommendation - is highly commercial in nature. If you care about gadgets, for instance, Engadget or Sony.com are both great landing sites for your online explorations. Cars? You may go to an enthusiast site, or Porsche.com.

Both content and advertising are best distributed via analytics- and algorithm-driven networks. Sphere is quite simply an algorithmic content redistribution network, and AOL's platform A is a (targeting) algorithm driven advertising network. These are different stripes on the same zebra.

Monday, March 17, 2008

Meanwhile, false beliefs in the political arena — the belief of Alan Greenspan and his friends in the Bush administration that the market is always right and regulation always a bad thing — led Washington to ignore the warning signs. By the way, Mr. Greenspan is still at it: accepting no blame, he continues to insist that “market flexibility and open competition” are the “most reliable safeguards against cumulative economic failure.”

It hit me: Greenspan, in practice and in retrospect, reminds me of nothing so much as Vietnam-era defense secretary Robert McNamara, the proponent of "the domino theory," and his still-ongoing and increasingly tragic efforts to shift all blame from himself long after the disastrous damage is done.

Greenspan's trumpeting of the ludicrous notion of efficient markets and support for the demise of market regulation will one day been recognized as equivalent folly.

The real tragedy here is that both of these men are geniuses in every sense of the word. It's impossible to watch The Fog of War and not come away impressed with McNamara. I highly recommend that film to anyone who has ever suffered even a little from hubris or ego. McNamara is smarter than you, better educated than you, more subtle and strategic than you, and he still blew it about as badly as a human being in power ever has done. Why? I can only guess, ideology.

Which is exactly how Greenspan has sent our country into our current tailspin.

Coming to a theater near you in 2028, _The Fog of Commerce_.

Hopefully, coming soon to a government near you, competence unblinded by nonsense.

Monday, March 10, 2008

Great article in the NYTimes on ad targeting and data scale. This is probably the first intelligent article in the mainstream media that I can remember on this topic - explaining that the combination of on-site and off-site behavioral data by consumers is what's driving the Internet today. An extension to the claims in this piece is that the same data is used to drive *products* (i.e. search relevance) as well as ad targeting; but I'll wait for their follow-up piece to close that gap.

Worth noting: The NYTimes has integrated "blogs" and their conversational style allows Louise Story to add some useful and interesting information to the more formal article. Check out her piece at the "Bits" blog for more data and further insight.

Some key quotes:

The rich troves of data at the fingertips of the biggest Internet companies are also creating a new kind of digital divide within the industry. Traditional media companies, which collect far less data about visitors to their sites, are increasingly at a disadvantage when they compete for ad dollars.

The major television networks and magazine and newspaper companies “aren’t even in the same league,” said Linda Abraham, an executive vice president at comScore. “They can’t really play in this sandbox.”...

Web companies once could monitor the actions of consumers only on their own sites. But over the last couple of years, the Internet giants have spread their reach by acting as intermediaries that place ads on thousands of Web sites, and now can follow people’s activities on far more sites...

“So many of the deals are really about data,” said David Verklin...

Some advertising executives say media companies will have little choice but to outsource their ad sales to companies like Microsoft and Yahoo to benefit from their data. The Web companies may prove they can use their algorithms and consumer information to better select which ads for visitors better than media companies can.

“I think a lot of publishers are going to find they don’t have enough data,” said David W. Kenny, chief executive of Digitas, a digital advertising agency in the Publicis Groupe. “There’s only going to be a handful of big players who can manage the data.”...

Even with all the data Web companies have, they are finding ways to obtain more. The giant Internet portals have been buying ad-delivery companies like DoubleClick and Atlas, which have stockpiles of information. Atlas, for example, delivers 6 billion ads every day. The comScore figures do not capture such data.

I am pretty confident that there is at least one zero missing from every number the Times quotes in this article. This is happening today at a monumental scale, and will only get larger as time goes on.

Monday, March 03, 2008

I imagine that one of the problems that Google has is matching existing ad inventory against all the wonderful random crap that searchers type in - with many searches being really hard to monetize by "traditional" means. Thus the many experiments they run. I wonder what the ROI on this particular example is?

This is a random discovery which came about as I was looking up some old co-workers. First names have been changed to protect the innocent.

First I searched for my old co-worker "Ed" Biasi:

Note that there are no ads. Name searches are tough to monetize.

Then I searched for my old co-worker "Joe" Satchel:

Note the ad match - It's for a Biasia satchel - which is apparently some sort of $200 name-brand purse:Not only is Google doing spelling correction on my Biasi search, they're remembering the immediate prior search term to match the ad. Apparently they only remember one prior search - when I did the same search twice (either Biasi or Satchel) the ad disappeared.

"HyperTable is sexy... yet, not relational... This is very confusing... I have to go now."

That's the sound of the world changing :-)

Most exciting, however is the level of engagment we've seen with the actual codebase, since that's where real open-source traction occurs. In addition to a vibrant mailing list, we're getting tons of feedback and bug reports - perhaps driven by the fact that in just two weeks, Hypertable has seen over 2600 downloads (!) -- of a 700MB tarball that you need significant skills to unpack and install. We're seeing all sorts of cool ideas about how this could be used, and look forward to many more.

Tuesday, February 05, 2008

For the past year, Zvents has been sponsoring the open-source Hypertable project for a distributed, web-scale database and analytics platform. I am *very* pleased to announce that earlier today, the alpha version of Hypertable became available for download, at the new hypertable.org site.

Thursday, January 31, 2008

I love this story. It's what Web 2.0 is *supposed* to be about, but rarely is.

Here are some of the key themes of Web 2.0:* Search is centric* Open-source software makes starting up cheap* People who lived and learned from Web 1.0 applying the lessons to succeed* Increased internet usage makes niche sites possible and profitable* New UI tools (AJAX etc.) make UI innovation possible again

So what do we actually get? A few great new companies, and a bunch of silly no-hope websites trying to make money off of each other's widgets. Uncov, we miss you already.

That's why I love AbleGrape, which my friend Doug Cook just launched earlier this week. AbleGrape is a vertical search engine for wine:

At launch, it supports English, French, and Italian; it has fully international content; it has really interesting new UI features for fast, sophisticated searching; and it's astonishingly relevant for even obscure wine queries.

The release email states:

We aim to be your first online stop for trustworthy, up-to-date wine information. Our public beta covers some 32,000 wine sites, with about 10 million pages of content, and we've put a lot of work into returning highly relevant results and providing an innovative, powerful user interface that helps you find things faster.

Doug Cook, the founder, coder, sole proprietor, and general polymath behind this achievement, was formerly a search engineer at Inktomi, and rose to VP of Engineeringat Yahoo! Search after the acquisition. He's also a world-class wine guy, who speaks several wine-useful languages fluently and has one of the better wine collections I've ever seen.

He has spent the past 2 1/2 years building AbleGrape himself from the ground up - coding, tuning the crawl and relevance, and engaging with the thousands of vineyards, negociants, appellation boards, government agencies, and other businesses and entities that make up the wine world. This has been a huge solo effort -- a personal memory I have of the process is watching Doug attempt to check the status of his crawl over a 9800 baud dial-up connection from a house in the Tuscan countryside of Italy - in August, 2006. Let's walk through that supposed Web 2.0 stack again: * Search is centric--> AbleGrape a search engine. A damn fine one.

* Open-source software makes starting up cheap--> Doug built AbleGrale with major pieces from the Lucene/SOLR/Nutch open source projects

* People who lived and learned from Web 1.0 applying the lessons to succeed--> Inktomi to Yahoo to AbleGrape. Check!

* Increased internet usage makes niche sites possible and profitable--> Let's hope -- for every wine question that you have, this is the first place you should go.

* New UI tools (AJAX etc.) make UI innovation possible again--> Doug has a number of fast, clever, interactive features for search refinement based on his years of search experience that take a second to learn, but are really useful. Doug describes them better than I would.

Amidst all the baloney, hype, and general mediocrity of much of the Internet space, examples like this give me hope and happiness. This rocks. Great job, Doug!

Sadly, I have no financial interest in this company. But Doug does share superb wine with me from time to time.

Video distribution on the Internet is already a huge and fragmented market, with consumer traction spread across a host of destination sites and widgets from VideoEgg to Vimeo to YouTube. It's also a rapidly growing and evolving market, with potential big players like Hulu lurking in the wings.

So if you've got video to distribute, and understanding consumer uptake is the lifeblood of your business, what do you do?

TubeMogul has a great product that's gotten significant initial traction, both with major users like CBS Interactive and with a long tail of more than ten thousand video creators. Their launch saw some greatpresscommentary as well. Hats off to Brett and the team for a great job thus far!

I think that TubeMogul, as well as another NSV investment, SingleFeed, are representative of an emergent trend toward distinct buyer- and seller- focused analytic offerings as multiple Internet marketplaces evolve from their initial stages toward a more sophisticated bid/ask framework. I'll have a further post on that soon.

I'm proud to be with the grumpy oldsters here, and Joel nails it with "it doesn't say much for the quality of those 150 people Google hires every week that they're now chasing some of the worst of the bad ideas of the fin de siecle."

Monday, January 28, 2008

I try to keep the Zvents product announcements to a minimum, but I'm really excited about this one. As part of our ongoing expansion of focus on local search, we've launched a new federated local search page on Zvents.com. We've been live with dozens (now hundreds) of media partners for over 18 months, and we've observed behavior of both searchers and local merchants that strongly suggested that we should unify our search experience across events, venues, restaurants, and performers. As we add in additional categories of local merchants, this blended result becomes even more important.

Doing federated search well is a hard, open problem, and while I don't think we have the perfect answer yet, this is a huge step forward for us, and an indicator of many great things to come. I'm loving our role as the deep technology provider for local media, and looking forward to more cool things we'll be rolling out in 2008.

Saturday, January 19, 2008

I've always thought that biodiesel was a dumb idea. Maybe it's because I grew up on a farm in Ohio, where a yield of 180 bushels of corn to an acre of land is considered outstanding, on some of the richest farm land in the world, where water falls from the sky. 180 bushels of corn may sound like a lot (a bushel is about 9 gallons for you city types) but this site says you get a grand total of 2.7 gallons of ethanol from a bushel. At 25 miles per gallon, that will drive one car about 12,000 miles -- the average distance that most people drive in a year.

So that's your tradeoff -- from a single acre of good farm land, enough food to feed 30 people for a year, or enough ethanol to support one single car, driven as we do today, for a year. 30 people vs. one car. Huh.

It is just about now, dear reader, that it should be dawning on you that the oil economy only works because the entire biomass of millions of years worth of extremely energy-rich plants and animals were compressed into this super-handy stuff we called oil. We have busily extracted this incredibly concentrated goodness from every convenient and many inconvenient places on earth, to the point where its future supply grows uncertain; and we frac it down into the gasoline we put into our cars, and kid ourselves that cleverness and progress is the root cause of our luxurious lifestyles, rather than the tapping of this one-time bonus from the geophysical history of the earth.

And now, as the remaining loose change from that historic bonus starts to rattle around in our pocket, we're desperately casting around for alternatives - and wondering if the globe's yearly spread-out dose of agricultural sunshine can somehow support a lifestyle grown large and fat on the hyper-concentrated fossil extract, without negative consequence.

Um, no.

But don't just take my word for it. Bitter economic truth is exerting itself as we speak, as demand for biofuels grows due to a combination of dopey hippies, foolish politicians, and farmers who never saw a subsidy they didn't like -- I'm looking at you, Iowa-caucus-goers and your bizarre cartel to mis-direct the agenda of U.S. presidential politics. Here's a great article in the New York Times that lays out how globally,poor people are either paying more money for oils or eating less calories because of this trend.

I am a big fan of environmentalism, but at its core enviromentalism means that we must do more with less. Many big green trends today - can you say "carbon credits" for your sports car -- are attempts to deny reality and kid ourselves about the innovation or sacrifices that are yet required of us. Biodiesel is yet another of those false, self-indulgent dead ends.

But there's hope. "The do more" part of the honest environmental equations fires me up. One reason I love the business of computers and communication is that it drives incredible efficiencies in the physical world. I am wildly excited about the many opportunities for innovation - which is what drives TRUE progress - but in order to concentrate on what matters, we have to stop pretending that dumb farm subsidies can save us, and get to work.

Friday, January 04, 2008

The results of the Iowa caucuses presage the coming big shift in American electoral politics. The Democrats are going to become the party of money and modernity, and the Republicans are going to become the party of economic populism and social conservatism. Some interesting results:

Obama is a candidate that can deliver the White House to the Democrats in a transitional phase from 2008 to 2016 -- in part because he will hold the votes of African-Americans, who otherwise favor both economic populism and social conservatism. Look for a Republican to win a surprising victory around 2020 in part by winning black votes, and look for increasing rejection of President Obama as "not a real black man" by the end of his second term.

Meanwhile, the Democrats become the party of business and trade. John Edwards may run for president again, but he'll do so as a Republican -- and the unions (the few that are left) will back him again, and vote a Republican ticket.

The Hispanic vote will become the new Democratic flank, replacing blacks - since "economic populism" will include anti-immigrant and anti-Spanish-speaking sentiment, expressed by both blacks and whites.

Thursday, January 03, 2008

Silicon Valley is as much about finance as it is about technology, and I appreciate great finance writing as much as I love great technology analysis. Silicon Valley is also a real-estate-obsessed place, so when that finance writing is about the greatest financial calamity to ever beset the housing market, the enjoyment is multiplied.

I'd like to call out Calculated Risk, a superb blog on the mortgage and housing industry, with two pseudonymous authors (CR and Tanta) who write with enormous knowledge and great flair about the debacle in progress on Wall Street and in Middle America right now.

In particular the recent post, "The Un-re-dis-inter-mediation Blues," is a scathing indictment of the sort of business model foolishness -- in this case carried out by Merrill Lynch -- that you may have thought was only the province of Web 2.0 startups. Highly recommended, and a good mental tonic when too many thoughts of advertising-supported business models and viral marketing are getting you down:

Aside from the idea of loan officers having sufficient spelling skills to play Scrabble, which is new to me, here we have the two same old dumb ideas that emerge in any mortgage downturn, with a delicious twist that it's Wall Street getting it instead of Main Street.

First, there's the old "let's retrain a bunch of subprime loan officers to be prime GSE loan officers." You civilians might think this should be fairly easy, but the fact is that training a lot of these people to be prime loan officers basically means training them to be loan officers. If they had any basic depth of understanding of the business they're in, they could move to prime origination by just reading that other rate sheet. The reality is that they've been doing no-doc no-down no-sweat stuff for so long--some of them have never done anything but--that they're sitting around with the PlayStation waiting for someone to tell them how a 30-year fixed rate loan with a down payment and verified income actually works...

Item the second causes a deep belly laugh in anyone who ever worked for a depository in a mortgage downcycle: "Why can't we just put the loans on the balance sheet?" I know it makes me a bad person, but the thought of Merrill getting this one from its mortgage people is floating me heavenward on a warm tide of schadenfreude...

That is--or once was--an old strategy for depositories: when you can't sell your loans, hunker down, stuff 'em on the books and wait for the tide to turn. We are seeing depository after depository shutting down its wholesale and correspondent lending divisions, meaning it will, as always, only allocate those portfolio dollars to keeping an expensive but much safer retail operation alive...

But Merrill really really wanted to be a retail originator in its own right. Welcome to the other side of the mortgage world, Mother Merrill, and try turning in some tiles. Maybe you'll get a vowel.